October 2017

As India looks to digital solutions to improve its ease of doing business rankings, flow talks to members of the Deutsche Bank transaction banking team about how they are rising to the challenge

The Deutsche Bank view


India’s digital story serves as a reminder of how our core pillars of transaction banking – trade finance, securities services and cash management – have been enhanced by developments such as electronic bills of lading, TARGET2-Securities, SWIFTgpi and CIPS in China. Other digital-based initiatives will no doubt follow.

At the same time, the number of MNCs and institutional investors doing business in Asia and dealing with Asian banks for their business has grown, while new fintech market entrants, regional banks and global providers have forced transaction banks like ours to rethink their operating models. What are we doing about it? We’re not sleeping through the revolution, that’s for sure and this is not a zero-sum game. We are working with clients, fintechs and regulators to deliver our services all through the value chain – cash, trade, working capital and FX. 

Lisa Robins is the Head of Global Transaction Banking, Asia Pacific at Deutsche Bank

 

India has gone a long way towards reclaiming its historic place as one of the world’s leading traders. Since 2011, it has traded more with the rest of the world than China. The latest government figures, released in September, show that exports have been growing for 12 consecutive months – totalling US$24bn for August 2017.1 This is having a significant impact on GDP: no country with a GDP above US$1tn is expected to grow as fast as India over the next five years (see Figure 1).

But, while India’s economy is growing, India’s Prime Minister, Narendra Modi, dreams bigger. His resolve is to increase India’s exports of merchandise and services to US$900bn by 2020, and to make India the most open economy in the world.2 In respect to the latter, India still has some way to go: the World Bank’s ‘Ease of Doing Business Survey’ ranked the country as low as 143rd in terms of international trade.3

So how can the government’s vision be achieved? As Modi recognises, digitalisation will play a key role. His ambition is to “take the nation forward – digitally and economically”.4

Easing business and reducing costs

A 2017 study conducted by The Confederation of Indian Industry and the Danish shipping giant Maersk indicated that as much as 38% to 47% of total transportation and logistics costs in India comprise the indirect costs of trade (including non-essential paperwork). The study concludes that a reduction of these costs by a mere 10% could generate additional revenues of up to US$5.5bn – and boost exports by 5–8%.5 One obvious means of driving down the indirect costs associated with trade is digitalisation.

Digitalisation initiatives abound

Thankfully, the Indian government recognises the importance of digitalisation. In July 2015, the ‘Digital India’ campaign was launched, focusing on three key components: improving digital infrastructure, increasing access to digital services, and increased digital literacy (see Figure 2).

“The campaign is driving change across the economic, social and political landscape in India,” states Anjali Mohanty, Deutsche Bank’s Head of Global Transaction Banking India. “The ultimate goal is to create a digitally empowered and economically enriched society, and a knowledge-led economy.”

As part of this campaign, a number of initiatives are already driving change in the trade space. Take, for example, the government’s recent ‘e-way’ initiative, which now requires all goods transported within the country to be registered on an online central database. By removing time for paper document inspection at state borders, this initiative has cut transport times drastically. For example, where it previously took in excess of 32 hours to transport goods from Mumbai to Delhi, it now only takes 25.

Another example is the Reserve Bank of India’s (RBI) authorising three entities to launch their respective Trade Receivables Discounting System (TReDS) – a digital platform through which small businesses can get access to working capital financing by auctioning their trade receivables from large corporates.

For India’s smaller companies that have historically struggled to obtain adequate funding – particularly in terms of their ability to convert their trade receivables into liquid funds – TReDS is an extremely important initiative. It provides easier access to funding at a competitive price, in turn helping to bolster the trade and supply chain ecosystem.  
 
As Mohanty notes: “Digital tools can reduce complexities and delays in the supply chain, and offer clear benefits for companies in terms of transparency, ease of doing business and speed of settlement.”

Figure 2: The Digital India vision and its key initiatives

  1. Digital infrastructure – The government’s aim is to develop an inclusive, ‘well-connected’ nation. Initiatives include bringing ‘Broadband highways’ to rural India and “universal access to mobile connectivity.” There remain around 55,619 villages in the country that do not have mobile coverage.

    India is also the first country in the world to have provided each of its citizens with a 12-digit unique identity number – an Aadhaar – based on their biometric and demographic data. As of August 2017, 99% of Indians aged 18 and above had been enrolled on Aadhaar. 
  2.  Digital governance and services on demand – The aim is to reform government through technology and by ensuring government processes are carried out in a more efficient and transparent manner. The Indian government has 31 projects active under the National e-Governance Plan. These include:
      • The e-TRADE programme for efficient, transparent and secure delivery of services by trade regulatory/facilitating agencies;
      • The e-Biz programme to enable fast and efficient access to Government-to-Business (G2B) services and reduce unnecessary delays in the regulatory processes required to start and run businesses; and
      • The e-Sign programme, an online electronic signature service that allows an Aadhaar holder to digitally sign a document.
  3. Digital empowerment of citizens – Modi sees digitalisation as a leveller, empowering citizens and cutting across demographic and socio-economic segments.

    Initiatives under this third ‘vision’ include ‘information for all’ – the development of an open data platform to facilitate open and easy access to government information for citizens. The Indian government has also initiated an IT for Jobs Programme focused on providing training to young people in the skills required for availing employment opportunities in the IT/ITES sector.

Rising corporate demand for digital efficiencies

It’s not just the Indian government that is looking to bolster trade through digitalisation. Major companies in India, such as Reliance Industries, are also investing heavily in the digitalisation of their trade processes. And they are looking to their banking partners for support.

As Mohanty comments: “The role of treasurers has increasingly become more strategic. They are looking to their bankers for solutions that are business enablers and that will help future-proof their business.”

Shyamal Malhotra, Deutsche Bank’s Head of Trade Finance Sales for India, adds that the bank is certainly witnessing increased demand for digital trade services covering the full spectrum of activities, from letter of credit issuance, to discounting, to receivables finance.

Cross-border import payments prime for a revamp

Mohanty and Malhotra confirm that another area of the trade cycle prime for a digital revamp is cross-border import payments.

Historically, upon presentation of required documents and information to customs, a paper bill of entry was issued if the authorities were happy that all was present and correct, which would then be taken by the client along with commercial documents, such as the invoice and transport documents, to the client’s bank in order to initiate the payment (after further verification and due diligence by the bank). It’s fair to say that this is not a simple or cost-efficient process – and this is without even considering the possibility of discrepancies with the documentation.

That process changed in late 2016, when the government, working with the RBI, introduced a new initiative allowing the bill of entry to be created digitally at the customs office and uploaded automatically to an application known as an Import Data Processing and Monitoring System (IDPMS). The information is then sent electronically to the importer’s remittance bank of choice. Once the import data became available on an authenticated platform, it was possible for banks to enhance their customer experience by going paperless for open account import payments.

Sunil Jain, Vice President Trade Product Development at Deutsche Bank, observes: “It has substantially reduced the client’s efforts in handling and submitting trade documents, substantially reducing the turnaround time.”

He adds that a treasurer or CFO can now log into their banking portal and access a real-time overview of all their pending import payments and authorise them at the touch of a button. Their bank, meanwhile, which previously would have requested piles of physical documentation, can make instant checks with the regulatory information, do the FX conversion and execute the payment.

Deutsche Bank, through its TradePay system, to take one example (see Figure 3), uses IDPMS data to verify the import payments, by checking them against details made available by the client on TradePay, eliminating the need for clients to share any physical documentation at all.

Jain concludes that such seamless import payments would have, only a few years ago, been considered “an impossible dream”. But India is now daring to dream – and to realise those dreams. It will be interesting to see how the Modi government continues to push ahead with its increasingly open borders, and how digitalisation acts as a core driver of efficiency and trade flows.

Note: Forecasts are based on assumptions, estimates, opinions and hypothetical models or analysis which may prove to be incorrect

Figure 3: TradePay illustration of paperless import payments

Step 1: Data sharing
The invoice-level data can be provided either by the client from its ERP or provided by the bank by extracting directly from IDPMS for the transactions logged against Deutsche Bank as designated bank. The data is then enriched by the client to meet regulatory requirements, validated by Deutsche Bank and converted to a payment-ready state.

Step 2: FX booking
Clients can book FX contracts either electronically (using Autobahn FX or FX4Cash) or through Voice channels. The contract numbers are updated in TradePay by the client.

Step 3: Payment authorisation
The payment authorisation can be done on TradePay or via the importer’s ERP.


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Sources:

1 See
http://bit.ly/2x2Fo2L at pib.nic.in
2 See
http://bit.ly/2eJEXQh at financialexpress.com
3 See
http://bit.ly/1zt4P40 at digitalbusiness.org
4 See
http://bit.ly/1KETk1m at digitalindia.gov.in
5 See
http://bit.ly/2wcoD0t at economictimes.indiatimes.com

Anjali Mohanty

Head of Global Transaction Banking India, Deutsche Bank

Anjali Mohanty

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